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23
Nov

Autumn Statement 2016

Posted on in The Budget
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Philip Hammond today delivered his first (and last) Autumn Statement and Spending Review as Chancellor of The Exchequer. In future, The Autumn Statement is to be replaced by an Autumn Budget and the Spring Budget will be replaced by a Spring Statement. Changes to taxation will be announced in the autumn and will provide Parliament with plenty of time to scrutinise the proposed tax measures before implementation at the start of the following tax year.

We are as usual detailing below some of the more salient taxation features which we believe will be of interest to you.

Personal Taxes and National Insurance

Personal allowances are to rise to £11,500 in 2017/2018 and the target of increasing this allowance to £12,500 by 2020 remains. Furthermore, the threshold at which higher rate tax commences will increase to £45,000 by 2017/2018 again as part of the target to increase this threshold to £50,000 by 2020. Thereafter, increases will be set to rise in line with the CPI.

The new National Living Wage for the over 25’s will rise to £7.50 from April 2017.

The Government will also be looking into different forms of remuneration to ensure a consistent taxation treatment. Currently, there are varying tax treatments dependent on the nature of the remuneration (some more favourable than others). No details have been published but it is thought this may involve the use of dividends and alphabet share structures.

They have however announced more specifically that they will be removing from salary sacrifice schemes all forms of arrangements except for pensions, childcare, cycle to work and ultra low emission cars. Furthermore, a review of how benefits in kind are valued for tax purposes will be undertaken. 

The National Insurance starting point for employer and employee contributions will be aligned from next April and contributions will start at £157 per week. The alignment of National Insurance last took place in 2010/2011.

As previously announced, Class 2 National Insurance for the self-employed will be abolished from April 2018. This is of course now processed through self-assessment rather than by Direct Debit/quarterly statement so taxpayers will not see any significant changes in process at that time. Contributory benefit entitlement will now be met by Class 4 Contributions. Whether this will mean an increase in the rate remains to be seen.

Off-payroll working rules

Individuals working for public sector bodies (including bodies such as The BBC, The British Museum and Channel 4) through their own Limited Company will find that the public body concerned (or agency) will be responsible for deducting tax and National Insurance from their remuneration with effect from April 2017.

Pensions and Savings

The ISA limit will be raised to £20,000 from April 2017 representing a considerable increase in percentage terms from the current limit of £15,240.

In order to limit individuals drawing down on their pensions whilst reinvesting this money in further pensions to obtain more benefit will find the allowance of permitted contributions in these circumstances reduced to £4,000 from the current limit of £10,000.

Business tax and VAT

The proposed phased reduction in the rate of corporation tax down to 17% by 2020 is to remain.

There is a proposal to introduce a new flat rate of 16.5% from April 2017 within the current VAT Flat Rate Scheme for businesses with limited costs such as many labour only businesses. Whether or not this has an impact on existing Flat Rate Scheme percentages taxpayers currently use remains to be seen. We await the publication of further details.

Making Tax Digital

The Government remains committed to Digital Accounting and representations from interested bodies have been made and further announcements following those representations will be published in January 2017.

As mentioned before…

In light of the fact that very little by way of tax changes were announced today, we would like to remind you of a couple of significant changes previously announced.

Housing and Landlords

With effect from April 2017, there will be a staged restriction on the tax relief available on interest on let property. Ultimately, relief will only be available at 20% regardless of the individuals marginal rate of tax. This poses issues with the high income child benefit charge for people earning over £50,000 and the withdrawal of personal allowances for those earning over £100,000 as the income figure for these two matters will now be at a higher level than previously the case. The relief for interest will now only be regarded as a reduction in tax as opposed to an expense.

You may be aware of a recent challenge to these changes in The High Court. This challenge proved unsuccessful and although the pressure group has indicated they will continue to “fight the good fight”, at present these proposed changes are likely to be rolled out from April 2017.

The Taxation of Dividends

The new rules on the taxation of dividends are now upon us having been introduced with effect from April 2016. In summary, dividends continue to be taxed as the last slice of income and are therefore subject to tax at the taxpayer’s highest marginal rate. The new rules will ensure that the first £5,000 of the dividend is taxed at 0% (i.e. no tax payable). The remaining dividend will then either be subject to tax at a basic rate of 7.5%, a higher rate of 32.5% or an additional rate of 38.1% depending on the taxpayer’s income profile. It should be mentioned that the £5,000 referred to is not in itself an allowance and will use up part of the tax band in which the dividend is first taxed.

And finally…..

As we have always maintained, with all matters referred to in the Chancellors announcements the “devil will be in the detail” and the full impact and understanding of all the announcements will not be made clear until the full parliamentary process has been undertaken and the proposals become law in the relevant finance act. We will issue further notices should any matters of significance be announced. 

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